AfroCentric Investment Corporation Limited (ACT) Earnings Call Transcript & Summary

Good morning and welcome to AfroCentric's Annual Results Presentation for the 6 months ended 31 December, 2024. Today, I have the honor of introducing AfroCentric's Group Chairman, Dr. Anna Mokgokong; Group CEO, Gerald Van Wyk; and Group CFO, Thato Moloele. The presentation is available on the website. And at the conclusion of the presentation, the management team will address any questions. With that, I now hand over to you, Dr. Anna Mokgokong. Thank you.

Good morning. Welcome to AfroCentric's annual results presentation for the financial period ended 31 December, 2024. It is an honor to address you today as we reflect on the past 6 months, a period marked by both challenges and progress. Before I hand over to my colleagues who will delve into the technical aspects of our results, I would like to provide an overview of the broader landscape that has shaped our organization's journey over this period, as well as the strategic steps we have taken to position AfroCentric for long-term success. In June 2024, the Board approved a refresh strategy, marking a new phase in our journey towards Vision 2030. This strategy is not just an ambition. It is a clear structured plan that we are actively executing with a heads-down approach, ensuring that every element is in place for success. The Board remains committed to supporting management in this execution. We have a well-constituted Board that provides governance, strategic oversight and unwavering support to drive AfroCentric forward. Our role is to enable, not hinder the agility and effectiveness needed to implement this strategy. A key component of this vision is our continued partnership with Sanlam. Gerald will elaborate further on this, including an update on how we are progressing towards our strategic priorities. We are operating in a complex and challenging economic environment, one that demands bold leadership, resilience and adaptability. While the pressures of rising health care costs, regulatory shifts and macroeconomic instability remain, the Board firmly supports the strategy refresh, ensuring that AfroCentric is positioned for long-term sustainability and growth in the years ahead. The health care industry is undergoing profound transformation, driven by ongoing deliberations on the National Health Insurance Act. AfroCentric remains actively engaged in these discussions, strengthening our relationship and engagement with the key stakeholders. We firmly believe that a workable and implementable NHI is one where both private and public sectors coexist and play a meaningful role. And we continue to advocate for this approach in realizing universal health coverage in South Africa. We are optimistic about the future and our approach is proactive, not reactive. We are not merely adapting to the changes around us. We are shaping the future of health care. An area of continued focus is risk management and compliance. We recognize that a strong governance framework is fundamental to the success of our strategy, and we have taken deliberate steps to elevate the importance of risk and compliance throughout the company. This ensures that we remain a trusted partner within the health care ecosystem, maintaining the highest standards of regulatory adherence and ethical business practices. Leadership changes are an integral part of any organization's strategic transition. And today, we acknowledge Hannes Boonzaaier, who at the end of January 2025, had been with the group for 22 years, of which the last 10 years were served as CFO of AfroCentric. And at the same time, we welcome Thato Moloele, our new Chief Financial Officer. Thato brings a wealth of experience, and we are confident that under his seasoned stewardship, AfroCentric will continue to build on its legacy of excellence. We further welcome Karabo Morule as an Independent Non-Executive Director to our Board, Dr. Numaan Mohamood as our Chief Health Commercial Officer, and Monwabisi Kula as our Chief Risk Officer. These appointments are aimed at strengthening and supporting our Board and Executive Team in executing our strategy. We are looking forward to their respective contributions to the group, and we are working towards achieving our Vision 2030 ambitions. In closing, I would like to reiterate that while the operating environment remains tough, the Board is fully supportive of the refresh strategy and is committed to creating an enabling environment for the business to thrive. We remain optimistic and bold in our approach, confident that our strategy will position AfroCentric for long-term success. I would also like to extend my gratitude to our employees, partners and stakeholders for their support and commitment. It is through your support that we have been able to navigate headwinds and remain optimistic sometimes in the face of very adverse circumstances like those we have faced in the reporting period. Let us now turn our attention to our annual results presentation. Thank you.

Thank you, Chairperson, and good morning, ladies and gentlemen, and a big welcome again from my side to our results presentation for the financial period ending December 2024. We are presenting to you a challenging set of results, which reflects the impact of the tough trading conditions, which the Chairperson alluded to in her introductory message, but it also reflects our deliberate investment in our strategic focus areas going forward and really using 2024 as a foundational year now that we've settled on our new strategy to create the foundation for our business in setting up its growth opportunities going forward. With that said and looking at some of the material drivers that have impacted on our operating environment over the last period, it's important to note that we've seen some major developments on the global health care landscape front as it relates to a stunning withdrawal and defunding of foreign health care aid by the U.S. government and how that will particularly impact our very strong and long-established HIV AIDS treatment programs in South Africa. Though it's early, we do expect that the consequences of these decisions at a geopolitical level will have far-reaching consequences in our health care system going forward. As you know, PEPFAR in particular, supports the South African health care efforts to the extent of contributing around 17% of the total spend in these areas. And we think that going forward, we will see some of these consequences extend to the availability and access to these care programs being impacted and then ultimately, also as a result of that, placing even more burden on an already strained public health care system. And as we've already seen now, significant job losses as it relates to those community health care workers that are working in the communities to assist with these programs. So a developing situation, a sad situation and certainly something that we take note of as far as it relates to our collaboration with the government. On the regulatory front, lots of things happened over this period. The ongoing engagements around NHI and its implementation thereof, but also a marked step change from an industry perspective in challenging the implementation of NHI as it relates to taking up some legal actions to look at both the procedural approach taken to get us to this point, looking at the constitutionality of NHI in its current form and then taking a view in terms of what we deem to be an essential private public framework that's required for a workable, implementable NHI to be successful and looking at the role that, for instance, medical aids, we believe, should be playing in that space. So ongoing developments on that front and really driving it through both these various legal challenges, but also continued engagement with the government of the day to move us forward in this space. Then we also saw the long-awaited CMS report on low-cost benefit options, which seeks to provide affordable primary health care insurance into the market. It really was disappointing for us as an industry to note the CMS' recommendation to do away with LCBOs and not allow medical aid schemes to incorporate it into its product offerings. It is our view as AfroCentric that low-cost benefit options are one of the most effective and practical ways where one can actually deliver accessible, affordable health care in the market and in so doing, really drive and move us closer to providing universal health care coverage. So, we're following this development quite closely and participating meaningfully in the process to make our voices heard in that front. And then I think another positive development was indeed the recent publication by the Department of Trade and Industry on the block exemptions for tariff determinations in the health care sector as a way of allowing the industry to collectively agree with service providers on certain things, including the cost of certain health care services in the market and really creating transparency around pricing structures as it relates to acquiring private services through medical aids in the country. We think this is a really positive development, but we're cautious in terms of how it gets implemented. And again, it's one of the areas where we're paying particular attention to in terms of commenting and creating a practical way that this can be implemented because essentially, we believe that where this is quite positive is allowing for these collective bargaining agreements that can take place between the industry and the demand side or the supply side rather of the health care sector. But pricing transparency alone won't be able to deal with the runaway medical aid or medical cost inflation that we see persisting in our space, speaking of which it still continues to outstrip CPI when we look at some of our health trends observations that we make. One of the others being that of hospital admissions, which over this period has increased by 3%. And this is after we returned to pre-COVID levels in 2023. And another interesting step in this front is when you look at Medscheme and the number of interventions per 1,000 lives around disease management, over the last 5 years, we've seen a 211% increase in managing disease per 1,000 lives within our broader health care ecosystem where Medscheme is a managed care contributor in that front. So, really hospital admissions and the high utilization of private health care services remains a big concern, and it's part of where we are directing our strategies in solving for our members and for our scheme clients. And then we're also seeing a continued high prevalence around mental health conditions, with major depression now being one of our primary admission categories that we're seeing play out on the health trends and observations front. Looking at some of the key highlights, taking our business in review and some of the things we said to you last time, we'll focus on correcting. And I think we've made some significant progress on a few of these, and we'd like to just contextualize this for you this morning. Some great advancements that we've made in the execution of our strategy, which, again, the Chairperson referred to earlier. And this, we believe, reinforces our future-looking view of potential for our business to the extent that we take a long-term view around it. And although when you look at the numbers, you would see an initial trade-off as it has impacted our financial performance and where we've made these investments coming through our operational expenses. We've seen some great growth in terms of the membership base, now permanently above the 4 million lives under our care, with a 3% growth over this corresponding period. And this is despite the loss of a significant plan option that we are no longer administrating in any way, shape or form that we previously announced to you in our last results announcement. So, good growth from a membership perspective. And then the turnaround in our National Department of Health program under the Pharmacy Direct business, where we were dealing with significant erosion in our margins as a result of the change of that contract that took place in October 2022. And with really a concerted effort over the last 6 months, we've seen a significant turnaround in that part of the business, where our profits in that space have increased by 140% between these 6 months and the prior 6 months. So, a remarkable turnaround and a continued collaboration with the department to ensure that we continue to grow and maintain this program. Our cash and cash equivalents have also grown by about 5% over this period, which really gives us the headroom we believe is required to make significant investments and continue these key investments as we work towards executing against our strategy. And then from a people and a culture perspective, really, we took great encouragement that we retained our Top Employer recognition and certification, which really speaks to the continued enhancement of our employee value proposition and driving excellence around our people agenda. When we then take a look at a summary view of our results, as I've mentioned, it is a difficult set of results to present to the market today as it relates to our overall performance, revenue is down by 3%. And this was mainly driven by some of those contract losses and a continued underperformance in our retail sector as it relates to revenue growth. And then as a result of this and the significant investments we've made in our clinical innovation and our technology innovation over this period, we've seen a marked drop in our operating profits. And as a result, our operating margins have reduced from 11% to 8% over the comparative period. When one takes a closer look at the retail sector, again, the key focus in terms of what's delivered this result has been cost containment as a key area of focus in lieu of some contract losses, but as well as continued underperformance in some of our businesses there like Activo. And as a result of that, we've again taken a very prudent view around that business in our original business case and what we deem is the potential future possibilities in that space by rebaselining our expectations. And as a result, in this period, we've also decided to incur another impairment in that business in particular. But the other businesses, although significant headwinds ahead in 2025, the result and in particular, the performance of the CCMDD turnaround has led to no material impairments needing to be considered in that space. But again, when we talk through headwinds later, it is one area of focus where we are continuing to rethink the operating model. We're continuing to resize that business and to integrate our pharmacy benefit management strategy into our core business, that being Medscheme as part of our winning health offering proposition and driving strong risk and governance strengthening of that particular sector as well. We will unpack a little bit more when our new Group CFO, Thato, discusses the financial results as well. But what I would like to do is just stand still on a few of the material highlights, which I've also just alluded to, and that relates to the DOH contract. You'll recall every 6 months when we come and present to the market, we've given you this update to show you how the new contract with the department, which was effective October 2022, that had a significant impact on our average revenue per script and the volumes of our script. And what we decided to do, given the importance of this program was really to collaborate with the department on the one front to see how do we actually drive greater engagement, take-up an awareness of this program at the coal face level. And that's paid off. We've been able to increase volumes here by 11% over the 6 months. And that, coupled with us taking an internal view to drive efficiencies in the business and really driving operational efficiencies and optimization, we've been able to significantly turn around this important part of our business. And what's in front of us now is obviously to understand how the defunding from a PEPFAR perspective could potentially impact this business. As it stands, we haven't yet seen any sort of impact on our volumes that we are generating out of this space. But it must be noted that PEPFAR does contribute about 6% of the workforce on the ground that actually drive scripting and that actually bring people into the program and support their adherence to their treatment plans. And so understanding that loss of capacity within the environment is a key focus for us, and we're collaborating with the department to see how we and other service providers continue to support this. And in fact, it is worth noting that the government has really doubled up to redirect resources to ensure this program remains optimal and that no single patient regresses as it relates to them actually adhering and maintaining their commitment to the program. And as recent as last week, the Department of Health announced a campaign to find a further 1.1 million people living with HIV and AIDS who are not on this particular program, and we're collaborating to see how do we bring those script volumes into the system as well. Looking at our Pharmacy Direct private business, I think some material developments there that's worth highlighting to the market is that going forward, we are going to see an impact over the next 2 quarters on that business, where we've lost about 3 Bonitas plan options, that being the Boncap option that we announced last year. And then in November of last year -- late November last year, we've received 2 further terminations of our primary and primary select options. Now collectively, these options contribute about 1/3 of the Pharmacy Direct private revenue as well as roughly also 1/3 of its profit. And so there's a key focus for us to right-size that business and to drive cost optimization now. And then as I alluded to, to really strengthen and accelerate the integration of our pharmacy benefit management strategy into our core Medscheme business as a way to refit this part of the business for new purpose. Activo is a business where in this financial period, we've taken a further impairment. And really just -- although there are some good green shoots, some significant product launches that have come through in 2025 that will drive new opportunity and revenue, we have seen as a result of the circular nature of our optimization model here that when Pharmacy Direct obviously aren't able to produce the revenue into this business without having alternative channels, Activo does indeed then need a reconsideration in terms of our growth expectations. And then there's continued margin erosion and pressure on the bottom line that we've seen as a result of some regulatory constraints as it relates to the single exit pricing in that environment. And then just a quick update to the market around the servicing cluster. In this period, I think 2 things important to note is that, one, we've -- at the tail end of concluding our 2025 annual fee renewal increases with our various schemes. And so far, we are well on target to meet at least an inflationary-linked average price increase for the 2025 period, which bodes well for our business in terms of our plans for the rest of the year. But also, we're in a period where many of our contracts are coming up for renewal or retendering in the 2026 cycle, including some of our major contracts in GEMS and Bonitas. And so there is a real concerted effort to continue these investments, deliver on the customer expectations manage the relationships and understand and clearly support their various individual strategies and really driving excellence throughout our organization as a way to not just retain these contracts when they come up for renewal, but to also expand on them and try and win new contracts as well. So, that's just some of the material highlights around the financial results, which I particularly wanted to call out for discussion today. When we then take a quick look at some of our strategic priorities, we announced to you last year that really our new refreshed strategy is underpinned by 4 strategic pillars, that being building a winning health offering in partnership with Sanlam, strengthening our managed care organization through clinical innovation, investing very strongly in our data, digital and technology capabilities and then evolving our operating model to drive sort of focus on our core proposition, with Medscheme being the cornerstone of that and driving full integration of our various propositions to stand behind that and really creating a step change in how we do business and how we serve the customer and meet their expectations. And significant step change in this regard. We've always been talking about the importance of Sanlam for the AfroCentric value proposition going forward. And here, we've really made sure it manifests in what we've done over the last 6 months in really achieving some major milestones. Some of that, you can see up on the screen here. We've successfully launched the Fedhealth and Sanlam product offering in 2025. And what this also has showed is what's possible within our business in moving towards an agile-driven methodology. The work we've been able to do here over a 9-week sprint is work that typically in the old AfroCentric would have taken us 6 months to 7 months. So, really a big milestone in delivering this and in the process successfully onboarding over 8,000 of Sanlam staff's corporate scheme onto their new partnership scheme with Fedhealth. And we've also just over the last 24 hours to 48 hours, launched our first iteration of a new health rewards platform, which is set to enhance the member engagement and wellness. And this will continue to be iterated into a completely new game-changing health rewards platform that will launch in 2026 and beyond. We are also on track to implement on Phase 2 for this year around this partnership delivery, which speaks to integrating these product solutions now across a vertically integrated model with Fedhealth at the center of this, providing medical aid products and expertise, Sanlam providing financial services expertise to enhance the proposition and Medscheme and AfroCentric-reated entities completing this value proposition as a key enabler in delivering a superior administration capability and supporting Sanlam and Fedhealth as they drive a go-to-market strategy that speaks to significantly going after corporate membership through now an established Sanlam Health Distribution business unit that is dedicated to drive this go-to-market strategy forward. So really, in summary, around building a winning health offering, we've set -- we've done what we set out we're going to do as a first iteration, and now we are focusing on growth as it relates to 2025 and beyond. I'll be brief on the managed care leadership one other than to also just acknowledge the significant strides in transitioning our business model here really from a transactional one to one that is driven by a value-based care proposition. And here, the focus has really been on several key strategic appointments driving new initiatives and being absolutely ruthless and focused on execution. We believe fundamentally that this will be a significant game changer for the AfroCentric Group in how we really lean into our leading position as a managed care organization and how we drive clinical innovation in this front. The Chair has mentioned a key appointment in Dr. Numaan Mohamood and the rest of the team in complementing this focus. We've established now our first foray into a value-based care model through an orthopedics unit that has been fully operationalized again in a short period of time, and that's ready to go live over the next few weeks with 2 pilot projects that will prove the concept and once successful, that we'll be able to scale and then start diversifying our revenue base and how we deliver value to our schemes going forward and really integrating ourselves as a key differentiated value proposition for them. And then the investment in data, digital and our platforms technology. We've modernized our technology ecosystem as it relates to our core operations. And I think this is really something over the 6 months that have led to significant improvement in member experiences. Our real-time processing even for our service providers and health care providers are up between 30% and 47%. And so you can imagine that this is a fundamental improvement that we've been able to realize for our business in this time. And then the collaboration with Sanlam can also not be underestimated in this space. We've realized over the 6 months already over ZAR 11 million worth of savings by just collaborating with Sanlam, exploiting synergies as it relates to shared licenses as it relates to using their bargaining powers to negotiate contracts and as it relates to using their technical skills in complementing the work that we're doing in this front. And we see even further opportunities where that is concerned. Several key appointments and a big driver in driving disease management. As you can imagine, if you've seen those kind of interventions in Medscheme over 5 years increasing by 200%, we've responded by putting people behind it. And that can't be the answer going forward. So, we do need to drive our technology investments to deliver on care coordination, hospital benefit management and disease management. And in order to do that, we need to drive artificial intelligence, the use of data and certainly being a digitally first-led managed care organization where that's concerned. And that will become a key focus for us as well as we move forward. And then lastly, looking at our operating model and how this has evolved. I mentioned to you a number of key appointments to strengthen key areas of our business, including our focus on risk and governance. We're really driving an integrated proposition that puts Medscheme at the cornerstone of all that we do. We are now a business that's moving into an agile methodology in how we approach change processes. And our biggest annual year-end process where we update scheme rules and product launches into the system, we've done on this basis through an agile and transformative process. And we think this is really what's going to set us apart to be quick, to be agile and to be responsive to our clients' needs going forward. And then we continue to enhance the proposition to our staff. So when one then looks at just what does this all mean and how should you measure the success of us driving these priorities and implementing against them. I think financially, we have a couple of big long-term targets that we are chasing. Yes, it's a significant J-curve as we are currently right now driving investments and implementation of the strategy. But over the long term, it's about value creation, and we're really targeting an EBIT margin range of between 24% and 28% over the next 4 years to 5 years. We believe fundamentally that we can take significant market share, and we'd like to see an annual growth rate of about 5% to 8% on membership growth. And then we would like to return significant investment by utilizing our resources on behalf of the shareholders effectively and seeing a risk-free plus anything between 2% and 5% return on our group embedded value. On the non-financial front, equally important because it speaks to experience and winning the hearts and minds of our customers, of our staff and of our esteemed clients. We really want to make a step up on our customer experience. And the way we want to measure that is how easy or difficult it is for customers to consume our products and to live in our ecosystems. We're currently trading at about 78%, and we're targeting that 85% to 90% range. We really want to drive automation as a key way of creating efficiencies, experiences and real-time engagement with our customers, and that's the range we're looking at. And then really focusing on putting the people at the center of what we do is to say how do we move from a 21, 22 employee Net Promoter Score currently to one that speaks to excellence and high engagement of a range between 30 and 50 going forward. So, these would really be some of the value drivers for us as a management team and as a business going forward, and we look forward to tracking and reporting on this when we speak to you about how we're making progress against our strategy going forward. And then in closing from my side, I just wanted to come back to our 2025 strategic priorities. I mentioned to you as it relates to building the winning health offering, it's now about deep level innovation and integration between the partners and expanding that partnership proposition. As it relates to digital innovation, we've identified significant use cases that we think will create a step change for us in terms of how we deliver stronger patient outcomes and drive operational efficiencies. And then on the people and culture development front, really, it is about continuously enhancing our people and culture and aligning strongly with what needs to be done. And then continuing our focus on strengthening our group governance. And then lastly, evolving our core existing models and driving deeper integration around our core proposition, which is what we are. Ladies and gentlemen, I hope you found value in me just setting some context in terms of the conditions we've traded under the impact of our financial performance and where we're going to in the future. I will now hand over to our new Group CFO, Thato Moloele, who will take you through the detailed financial results. Thank you.

Thank you, Gerald. Good morning to everyone joining us online to our investors, our directors, members of [ Afco ] and as well as our staff. It's a pleasure to be here today to present AfroCentric's results for the financial year-ended 31 December 2024. This being a 6-month reporting period, following alignment of our financial year-end with Sanlam's financial year-end. 2024 was mostly a challenging period for the group, as the group revenue, earnings and headline earnings regressed compared to the same period in 2023. We reported a loss after tax of ZAR 119 million after recognizing an impairment loss of ZAR 218 million, which reversed from a headline earnings perspective, with our headline earnings coming down to ZAR 32 million. Operationally and financially, our performance was impacted by a variety of factors, but the main was impacted by contract losses in our managed health care, marketing and pharma lines of business. Channel margin pressure arising from the SEP pricing adjustments continue to have an impact on our pharma businesses. Our pharma businesses received termination notice on 3 of our DSP arrangements with Bonitas in November 2024. Two of the terminations related to Primary and Primary Select came into effect from January 2025 and the other relating to Boncap will come into effect from May. These pressures necessitated a review of our goodwill attributable to our pharma assets as we move to a more prudent approach in determining the value of these businesses. This approach included valuing Activo using a market-derived discount rate, which is more conservative to the actual discount rate of the business and contributed almost half towards this impairment. As noted earlier, our services revenue was negatively impacted by the termination of Bonitas' marketing contract effective 1 September and the termination of our managed health care contract with Boncap, which has phased down over the last 12 months. These contracts had a combined annual value of ZAR 274 million and jointly contributed to an annual value of ZAR 100 million to our operating profits. From a managed health care perspective, we managed to contain some of the financial losses by transitioning half of our affected operational staff to the Boncap service provider, generating a saving of ZAR 41 million in the current financial year, while earning a once-off wind-down fee of ZAR 4.5 billion. Despite some of these challenges, we still noted and managed to grow the top line in our revenue line by ZAR 46 million or 2% period-on-period. This growth came off the back of higher membership levels with our public schemes, which grew by more than 115,000 members, increasing total membership to just over 4 million lives. The growth in revenue was further supported by inflationary-linked increases, which were negotiated and agreed across most of our schemes and in line with our projected targets. In a normal year, the growth in revenue would have yielded a higher level of profitability for the group. However, this was a foundational year for the group in which we started investing in the refresh strategy. Accordingly, we reinvested ZAR 38 million of our earnings into the data center migration and ZAR 67 million into hiring specialist clinicians and actuaries to support the Medscheme businesses. This initial investment into improving our digital and clinical capabilities was funded from our operating cash resources as reflected in the higher operating costs and lower operating margins reported for the year. Our public courier business performed exceptionally well during the year. Our partnership with The Department of Health continues to strengthen, evidenced through successful collaboration to deliver more scripts to public users of chronic medication. During the year -- during the current year, script volumes increased to a monthly average of 1.4 million, which contributed towards the public business, doubling its EBIT contribution to the group. This increased to ZAR 30 million for the period. The private courier business, however, regressed as the average number of scripts decreased, and we accordingly earned lower fees and lower gross profit margins arising from an unfavorable sales mix in the private space. As mentioned earlier, our pharma assets also experienced significant marketing and pricing pressures with lower sales and gross profit margins generated through our ARV, oncology, hospital channels, which were partially offset by our growing OTC and pharmaceutical channels. As a group, we have responded to these pressures by tightly managing our expense base, reallocating our sales and distribution teams to focus on more accessible channels and right-sizing various operational aspects of the cluster. These initial actions have allowed us to steady the ship from an operating profit perspective and deliver a comparable level of profit margin to the prior period. As was the case in June, our balance sheet remains a highlight for us in the reporting period as it remains robust even during testing times. Our external borrowings and debt remain well within manageable levels as evidenced through our ability to continue servicing third-party loans, paying down some of our capital borrowings, maintaining comfortable levels of solvency and liquidity levels. Another notable highlight was our ability to collect -- to improve our collections from the DOH, which in turn assisted us to pay down and manage down our supply debt. Now one of the core strengths of the business, which really gets me excited is our ability to generate cash flow from operating activities. In the current year, we managed to convert more than 78% of our profits into cash flow, which assisted us to finance operations, invest into our strategy, comfortably service external third-party debt and still declare a dividend of ZAR 0.06 per share, all whilst retaining ZAR 300 million of unutilized debt capacity, which is available to assist us in funding the future growth of our business. So in short, despite the year that was, we still remain quite excited and optimistic for the future of the business. Slowing inflation levels, lower interest rates, a more stable electricity grid, all bode well for the general economy and are indicative of a more favorable operating environment in 2025, which we anticipate to further drive medical aid membership across our schemes. We'll continue to prioritize our refresh strategy by further collaborating with our strategic partners and clients while investing in digital and clinical capabilities to allow us to compete more effectively and efficiently into the future as we become pioneers of the value-based care model of taking care of our members. Lastly, we'll continue to assess the strategic operational model of the retail cluster to ensure better alignment with our core operations and objectives.

Thank you, Thato. Gerald, if you could please join Thato so that we can proceed with going through the questions from the webcast. Great. We'll proceed with the first couple of questions from [ Albi Silas ] from Salandia Capital. The first question relates to cash available for distribution to shareholders. This was communicated at around ZAR 260 million to ZAR 310 million previously. I think at the last presentation, he notes there was no comments around the ZAR 65 million cash outflow to buy Sanlam shares for the incentive plan. Could you please comment around this, as well as the reduction in dividends?

Thank you, Sean, and thank you for the question, Albi. Firstly, yes, you are correct, that is what we previously reported on. And as I also mentioned, our cash and cash equivalents have increased over the period since that result announcement by around 5%. The key thing is around the ZAR 65 million purchasing of the Sanlam shares. It was something that we were always going to do, as you would recall. In the past, we would use an equity settlement to meet our long-term incentive plan options for key management within the business by acquiring shares in the market. We've now just in this instance, used a different mechanism to do that. So, that was always a cost that on an annual basis, AfroCentric incurs when we do make allowance and execute against meeting our long-term incentive plans for our key management. The dividend is slightly lower in terms of what we had reported in the past. Our distributable income were that we had available. But this really is a key function of 2 things, I believe. One is the significant investments we are making in our strategic initiatives. I think what's required there is a much broader range than what we previously anticipated. And then we are clear that we're still facing some significant headwinds. So, we're deploying a very prudent capital allocation strategy at this juncture of where we're at. There are some key client concentration risks that are still ahead of us. I've mentioned to you, come 2026, it is a watershed year for AfroCentric as many of our key contracts around GEMS, Bonitas, POLMED and even the CCMDD where we've so successfully turned it around are all coming up for renewal. And that's the nature of our business. So it's cyclical. And at this juncture, we are taking a very prudent view on our capital management.

Thank you, Gerald. We have a follow-up from Albi here. It relates to share buyback program. He notes here over 400,000 shares were purchased at an average price of ZAR 2.67 in accordance with the 1 November, 2024 Board Resolution. He'd like to know when did you stop buying back the shares? And do you intend to start buying back the shares in the market again, given where the current share price is now?

Yes. I think I'll also take that question, Albi. Firstly, I think it's worth acknowledging that we are as concerned of around the current trading levels of the AfroCentric share price, which we fundamentally believe isn't a fair and accurate reflection of the intrinsic value in the business. But we're also clear that given the headwinds and given how we've seen some of these contract losses, for instance, have manifested in the business, that the Board's directional steer to us as management is quite clear, and that is to focus on building and executing well against our strategy, driving operational efficiency, investing in the business and in do so, really create an alternative to some of these value disruptions that we've seen come through in some of our key client operations. So, that is really a key overhang that we are quite mindful and single-minded about. As it relates to your question around the share buybacks, we stopped that in around the first week of November after receiving that Board Resolution to pursue them. And really, the initial approach around it was to -- instead of creating or acquiring new shares through an equity play and through that diluting the current shareholder base to satisfy our LTIs, we looked at it and said, why don't we rather buy back shares to satisfy the LTIs and then derisk the dilution impact that it could have. But inadvertently, we were also in doing so, artificially supporting the share price at those levels at the time. And so we had to consider what's in the best interest of all shareholders and not just a particular grouping of shareholding. And that's how we came up with an alternative mechanism that still speaks to driving value in terms of the AfroCentric performance. So, these LTIs that we've acquired through the Sanlam restricted share plan, all are linked to vesting conditions that speak to the overall performance of AfroCentric and not Sanlam. So, I think that's a key part. And then maybe the last part of your question as it relates to if previous management benefited from that, so if my memory serves, that happened towards the mid of November where previous management and in this instance, our former CFO started selling his shares. And so no, there was no direct benefit for previous management from our share buyback program at the time.

Thank you very much, Gerald. That sort of links to a further follow-up from Albi around the previous disposal of shares from previous management in November last year. And I think you've already answered the question around whether this previous management benefited from the sales. So, I think we've covered that. A further follow-up from Albi. Can you please explain in more detail what you meant by saying the values of some business units reduced by using market-based discount rates versus actual discount rates?

Yes. So, this is mostly as a result of our compliance with the standards of IAS 36. Ultimately, we took a more prudent approach to look at the discount rate and the cost of debt as it impacts the value of the investments. So looking at this, we looked at the averages of assets in the pharma space and applied a market-derived discount rate by looking at those capital structures to determine the capital value of the business. So if we were to go and then use the actual capital structure of our business as well as our beneficial funding rates, there would actually be quite a substantial benefit or uplift in value for the business. From an actual cash perspective level, we actually derive value at the actual levels rather than at those more markets levels.

Great. Thank you very much, Thato. And then it looks like we have the last question on the line at this point. It's from [ Nick Criker ] from Signal Asset Management. His question relates to AfroCentric's shares as performance incentives. He says, there are rumors in the market that management refused to accept these shares. And hence, obviously, what could have been funded for the dividend has now been used for Sanlam shares. Could you please comment about this?

I'll certainly take that. Thank you, Nick. And I can certainly dispute that rumor. It's certainly not the case. I think it's important to understand the mechanism and the outcome. The mechanism used in this instance is using Sanlam restricted shares to incentivize management to align itself 100% over the medium to long term to the performance objectives of AfroCentric. So the vesting conditions relate 100% to the performance of AfroCentric and not that of Sanlam. And in doing so, we ensure that management remains completely aligned to what's in the best interest of the company and then, ultimately, that of its shareholders. So, I think from that perspective, I can categorically deny that there was a revolve to the extent that management did not want to accept AfroCentric shares in lieu of what we've put out.

Great. Thanks, Gerald. We have a follow-up from Nick related to a question around, has Sanlam performed a strategic review? And are there any assets, which are classified as non-core that could be potentially sold?

From a Sanlam perspective, I can't speak for them. But from an AfroCentric perspective and as part of the processes that we went through as a Board to arrive at our strategy refresh, we had certainly done that. And you need to understand, obviously, it was done in the context of the significant overhang of National Health Insurance, which if implemented in its current form and shape, essentially means overnight, a business like us becomes irrelevant and only compete in complementary health care services. So in order then to pursue the strategy, one had to really understand what is our assessment of that situation as an example. Similarly, we are continuously reviewing some of our businesses. And we've already, in that regard, driven an optimization strategy that speaks to integrating our businesses around Medscheme as the core. So, we're really going back to our genesis, which is medical aid administration, health risk management and technology. And that is how we're moving the business. And so refitting, refocusing the business around that is one of our key strategic outcomes of this Board process that we followed to arrive at the current strategy. And given the performance and underperformance of certain businesses, it's a continued process. And so as we go through that, we would certainly take that under advisement as management and the Board and make decisions that are in the best interest of the company as we move forward.

Great. Thank you, Gerald. We have a follow-up from [ Ben Pooler ]. His question is around the share scheme yet again. Why are executives being rewarded with Sanlam shares rather than AfroCentric shares? Surely, incentives should be aligned with shareholders. This is not a mission of concerns around creating shareholder value.

Yes, it's a great question again. And I think that's exactly what we'll demonstrate to you when we put forward our remuneration implementation report that sets out these vesting conditions at the AGM where all shareholders will have the opportunity to assess and to vote on it through a non-binding vote. And we fundamentally believe that the mechanism used and the outcomes in terms of how management will be incentivized on a long-term basis are completely aligned with what's in the best interest of AfroCentric and not that of Sanlam. But it is an important mechanism at this juncture given where we are as a business and ensuring that we can keep the focus and we can keep this massive talent that we've mobilized in the health care sector. You saw what the Chairperson presented earlier today. It's no mean feat to put this type of key management structure in place, which is going to become paramount in us delivering on this bold ambition that we have to become the leading health care player by 2030 as it relates to patient outcomes, member experience and ultimately significant growth.

Thanks, Gerald. Following the conclusion of the Q&A session, Gerald, do you have any closing remarks?

Yes. Thank you, Sean. Just a big thank you to our investor community and our staff and all our stakeholders for your continued support and engagement. As a management team, we really are focused on building credibility around our strategy refresh. We think we have a significant right to win. We have strong strategic partners, the way Sanlam has made a significant step up, as you can imagine, for a ZAR 1.5 billion, ZAR 2 billion organization as it stands versus a ZAR 40-plus billion market capitalization business. In that aspect, we are quite small in the life of Sanlam. But what I can tell you is that AfroCentric and our strategy that we've settled on is part of the top 3 key initiatives for Sanlam going forward. So it's being embedded, it's being integrated. And we believe with the largest pan-African non-financial banking organization behind us and the strong management team and this very competent Board, that we are set for success despite these challenges and headwinds that we face. So, a big thank you and to our staff also for showing up as it relates to servicing our clients with excellence, taking care of our people and driving outcomes and performance in the organization. We certainly believe we have put significant runs on the board and the financial results will soon follow. Thank you for your time.